The Caffeine Coffee Company uses the modified internal rate of return. The firm has a cost of capital of 12 percent. The project being analyzed is as follows ($34,000 investment):
Use Appendix A and Appendix B.
Year Cash flow 1 $ 13,000 2 12,000 3 10,000
(a) What is the modified internal rate of return? An approximation from Appendix B is adequate. (You do not need to interpolate.) (Round "FV Factor" to 3 decimal places and final answer to 2 decimal places. Omit the "%" sign in your response.)
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Related questions
The Fit & Trim company uses the modified internal rate of return. The firm has a cost of capital of 12 percent. The project being analyzed is as follows ($27,000 investment):
| Year | Cash Flow |
| 1............ | $15,000 |
| 2............ | 12,000 |
| 3............ | 9,000 |
a. What is the modified internal rate of return? An approximation from Appendix B is adequate.
b. Assume the traditional internal rate of return on the investment is 17.5 percent. Explain why your answer in part a would be lower.
| Home Security Systems is analyzing the purchase of manufacturing equipment that will cost $92,000. The annual cash inflows for the next three years will be: |
| Year | Cash flow | |||
| 1 | $ | 41,000 | ||
| 2 | 39,000 | |||
| 3 | 34,000 | |||
| (a) | Determine the internal rate of return using interpolation. Use Appendix B and Appendix D. (Round "PV Factor" and intermediate to 3 decimal places. Round final answer to 2 decimal places. Omit the "%" sign in your response.) |
| Internal rate of return | % |
| (b) | With a cost of capital of 10 percent, should the machine be purchased? | ||||
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| The Pan American Bottling Co. is considering the purchase of a new machine that would increase the speed of bottling and save money. The net cost of this machine is $51,000. The annual cash flows have the following projections: Use Appendix B and Appendix D. |
| Year | Cash flow |
| 1 | $ 15,600 |
| 2 | 20,600 |
| 3 | 25,600 |
| 4 | 10,600 |
| 5 | 5,600 |
| (a) | If the cost of capital is 10 percent, what is the net present value of selecting a new machine? (Round "PV Factor" to 3 decimal places. Round all dollar values to the nearest dollar amount. Omit the "$" sign in your response.) |
| Net present value | $ |
| (b) | What is the internal rate of return? (Round "PV Factor" to 3 decimal places. Round all dollar values to the nearest dollar amount. Round your answer to 2 decimal places. Omit the "%" sign in your response.) |
| Internal rate of return | % |
| (c) | Should the project be accepted? | ||||
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